So what age is the right age to start saving money for your future? The practical answer is any age when you start to work and earn money for yourself, whether it’s being paid for chores at age 5 or entering the workforce after law school at age 25. Saving money is a wise financial practice at any age.

But to get to the bottom of this question, take a moment to explore your motivations and your personal financial situation in depth. Honest answers may give you the push you need to get started on your savings goal right away.

Before you decide when to start saving money, the first decision to make is on a set of goals. Are they short-term, such as some new shoes or your next vacation? Or is it longer, like saving for your next car? Or is the goal even loftier, like the down payment on your first house?

A short-term savings goal is usually something that you wish to accomplish within six to 12 months. A long-term goal is generally one that will take five years or more to achieve, like building up a retirement fund to support you and your family.

If you have a short-term goal, the age to start saving money is right now. One key short-term goal to plan for is the need for an emergency fund. According to Bankrate, your emergency fund should equal three to six months of bills. CNN Money suggests that you start saving for long-term retirement goals in your 20s, as soon as you leave school.

• Why is it Important to Start Saving Early?
• What to Consider When Investing
• At what age Should you Start Saving for College?
• What are Benefits of Saving?
• How much Money Should you Save each Month?

Why is it Important to Start Saving Early?

When you’re in your 20s, retirement seems so far off that it hardly feels real at all. In fact, it’s one of the most common excuses people make to justify not saving for retirement. If that describes you, think of these savings instead as wealth accumulation, suggests Marguerita Cheng, CFP, CEO of Blue Ocean Global Wealth in Rockville, Maryland.

Read Also: The Ultimate Beginners Guide to Budgeting and Saving

Anyone nearing retirement age will tell you the years slip by, and building a sizable nest egg becomes more difficult if you don’t start early. You’ll also probably acquire other expenses you may not have yet, such as a mortgage and a family.

You may not earn a lot of money as you begin your career, but there’s one thing you have more of than richer, older folks: time. With time on your side, saving for retirement becomes a much more pleasant—and exciting—prospect.

You’re probably still paying off your student loans, but even a small amount saved for retirement can make a huge difference in your future. We’ll walk through why your 20s are the perfect time to start saving for those post-work years.

Know Your Goals

The sooner you start saving for retirement, the better it will be down the road. But you may not be able to do it yourself. It may be necessary to hire a financial advisor to help you out—especially if you don’t have the know-how to navigate the process of retirement planning.

Make sure you set realistic expectations and goals, and make sure to have all the necessary information when you meet with an advisor or start mapping out a plan on your own. A few things you may need to consider during your analysis:

• Your current age
• The age when you plan to retire
• All income sources including your current and projected income
• Your current and projected expenses
• How much you can afford to set aside for your retirement
• How and where you plan to live after you retire
• Any savings accounts you have or plan to have
• Your health history and that of your family to determine health coverage later in life

Compound Interest Is Your Friend

Compound interest is the best reason it pays to start early with retirement planning. If you’re unfamiliar with the term, compound interest is the process by which a sum of money grows exponentially due to interest more or less building upon itself over time.

Let’s start with a simple example to get down the basics: Say you invest $1,000 in a safe long-term bond that earns 3% interest per year. At the end of the first year, your investment will grow by $30—3% of $1,000. You now have $1,030.

However, the next year you’ll gain 3% of $1,030, which means your investment will grow by $30.90. A little more, but not much.

Fast forward to the 39th year. Using this handy calculator from the U.S. Securities and Exchange Commission’s website, you can see that your money has grown to around $3,167. Go ahead to the 40th year and your investment becomes $3,262.04. That’s a one-year difference of $95.

Notice that your money is now growing more than three times as quickly as it did in year one. This is how “the miracle of compounding earnings on earnings works from the first dollar saved to grow future dollars,” says Charlotte A. Dougherty, CFP, founder of Dougherty & Associates in Cincinnati, Ohio.

The savings will be even more dramatic if you invest the money in a stock market mutual fund or other higher-earning vehicles.

Saving a Little Early vs. Saving a Lot Later

You may think you have plenty of time to start saving for retirement. After all, you are in your 20s and have your whole life ahead of you, right? That may be true, but why put off saving for tomorrow when you can start today?

If you have access to an employer-based retirement plan, take advantage of it. Most employers will match some of your contributions, so you’ll benefit from having an extra boost to your savings. And with pretax deductions, you won’t even notice your money is being put away.

You can also put money aside outside of your employer. Let’s consider another scenario to drive this idea home. Let’s say you start investing in the market at $100 a month, and you average a positive return of 1% a month or 12% a year, compounded monthly over 40 years. Your friend, who is the same age, doesn’t begin investing until 30 years later, and invests $1,000 a month for 10 years, also averaging 1% a month or 12% a year, compounded monthly.

Who will have more money saved up in the end?

Your friend will have saved up around $230,000. Your retirement account will be a little over $1.17 million. Even though your friend was investing over 10 times as much as you toward the end, the power of compound interest makes your portfolio significantly bigger.

Remember, the longer you wait to plan and save for retirement, the more you’ll need to invest each month. While it may be easier to enjoy your 20s with your full income at your disposal, it will be harder to put money away each month as you get older. And if you wait too long, you may even need to postpone your retirement.

What to Consider When Investing

The types of assets in which your savings are invested will significantly impact your return and, consequently, the amount available to finance your retirement. As a result, a primary object of investment portfolio managers is to create a portfolio that is designed to provide an opportunity to experience the highest return possible.

Amounts that you have saved for short-term goals are usually kept in cash or cash equivalents because the primary objective is usually to preserve principal and maintain a high level of liquidity. Amounts that you are saving to meet long-term goals, including retirement, are usually invested in assets that provide an opportunity for growth.

If you manage your investments instead of using the services of a robo-advisor or professional, it is important to understand that there are other factors to consider. The following are just a few:

Market Risk

The investments that provide the opportunity for the highest rate of return are usually the ones with the highest level of risk, such as stocks. The ones that provide the lowest rate of return are usually the ones with the least amount of market risk.

Risk Tolerance

Your ability to handle market losses should be factored in when designing your investment portfolio. If the amount of market risk associated with your portfolio causes you undue stress, it may be practical to redesign your portfolio to one with less risk, even if it is determined that the amount of risk is suitable for your investment profile.

In some cases, it may be practical to ignore a low level of risk tolerance if it is determined that it negatively impacts the ability to provide your investments with sufficient growth.

Generally, the level of discomfort one experiences with risk is determined by one’s level of experience and knowledge about investments. As such, it is in your best interest to, at a minimum, learn about the different investment options, their market risks, and historical performance.

Having a reasonable understanding of how investments work will allow you to set reasonable expectations for your return on investments, and help to reduce the stress that can be caused if expected returns on investments are not achieved.

Retirement Horizon

Your targeted retirement age is usually taken into consideration. This is usually used to determine how much time you have to regain any market losses. Because you are in your twenties, it is presumed that investing a large percentage of your savings in stocks and similar assets is suitable, as your investments will likely have sufficient time to recover from any market losses.

At what age Should you Start Saving for College?

If you’re a parent or are going to be a parent soon, there’s a good chance you’ve thought about the high cost of college. After all, the average cost of in-state tuition and fees is currently about $10,000 per year, and that’s in addition to the room, board, books, and other expenses.

So you can only imagine how expensive it will be when your kids reach college age. With that in mind, here’s a rundown of when you can start a college fund for your child, the best ways to start saving, and why it’s important to get started early.

When can you start a college fund?

You can start saving for college expenses at any time, but in order to do it in a 529 plan or Coverdell ESA (more on those in a bit), there are a couple of things to know.

First, these accounts need to have a beneficiary for whom the account will be used. In order for your child to be named as the account’s beneficiary, you’ll need their Social Security number. Once you have it, you are able to set up a college savings account in your child’s name.

Having said that, there’s a way to get started even sooner — before your child is born. With 529 plans and Coverdell ESAs, you can change the beneficiary quite easily. So it’s possible to set up an account with yourself listed as the beneficiary, and then change it after your child is born.

The different ways you can save for college

There are several different ways you can save for college. For example, many parents simply choose to set aside money in a regular bank savings account, or even a checking account. Others use their own brokerage account to invest for college and plan to sell investments and withdraw funds when the time comes.

Having said that, there are some advantages to using college-specific and other tax-advantaged savings vehicles. Here’s a quick rundown of the three main options in this category:

• 529 savings plans are administered by state by state and are structured similar to 401(k) accounts in terms of investment selection. Generally speaking, you’ll have one or two dozen investment funds to choose, and there are also age-based portfolio options that you can often choose. Tax-wise, contributions to a 529 savings plan aren’t deductible on your federal tax return, although they may be deductible on your state taxes. However, all qualified withdrawals for educational expenses are 100% tax-free, no matter how well your investments have done.
• Coverdell Education Savings Accounts, or ESAs, are brokerage accounts that allow the investor to invest their college savings in virtually any stocks, bonds, or funds they want. And they have a similar tax structure to a 529 savings plan, where qualified withdrawals are tax-free. The potential downside to using a Coverdell ESA is that you can only contribute $2,000 per year per beneficiary. On the other hand, 529 savings plans are only limited by a maximum account balance restriction, which is often in the $400,000 ballpark.
• Finally, Roth IRAs are also quite popular for college savings. Roth IRAs have the same basic tax structure as both 529 savings plans and Coverdell ESAs, plus college expenses are an allowed exemption to the IRS’s early withdrawal penalty. However, Roth IRAs don’t have to be used for college expenses. If you end up not needing all of the funds for your kids’ college education, you can simply save it towards your own retirement.

When should you get started?

The short answer is that you should get started as soon as possible. We are not saying that you need to start a 529 plan for your yet-to-be-born children, but the longer you allow for your money to compound (and to ride out the market’s ups and downs), the better.

As a final thought, consider this simplified example. Let’s say that you want to have $25,000 available to help put your child through college once they turn 18, and that you can expect an average annualized return of 7% on your investments.

If you wait until your child is 10 years old to start saving, you’ll need to set aside about $2,100 per year, or about $175 per month in order to meet your goal. If you start saving when your child is five years old, the annual funding requirement drops to just $1,109, or about $92 per month.

And finally, if you start when your child is born, you’ll only need to set aside $669 each year, or $56 per month in order to meet your $25,000 goal.

The bottom line is that the sooner you start saving for college, the easier it will be to reach your goal. So, if you’re able to start saving now, it may be a smart idea to not put it off any longer.

What are Benefits of Saving?

Saving money requires a lot of discipline. However, with firm determination, it is not a difficult habit to adopt. Many Singaporeans can benefit greatly from the habit of saving if they choose to do it faithfully. Read some of the benefits as described below:

1. Helps in emergencies

Emergencies are always unexpected. Therefore, when they occur, the funds required are usually not part of the regular budget. There will be pressure to look for extra funds at a very short notice. This problem can be compounded if the emergency is a sudden illness or car accident. It could be a matter of life and death.

Accumulated savings can go a long way in alleviating the situation. The patient will receive the required treatment immediately. Other emergencies that could be financed through savings are funeral expenses, urgent house repairs and even car repairs.

That said, such emergencies usually require a large sum of money. If one lacks the requisite funds, they can consider applying for a personal loan with a licensed money lender. This will help to ease their finances for the time being.

2. Cushions against sudden job loss

Job loss is usually traumatic. It can leave a family in a huge crisis. Saving can be a great cushion of comfort at this time of sudden loss of income. It is usually very difficult to borrow money when one is left jobless. Therefore, those who have not been wise enough to save will be down to zero completely after a job loss.

3. Helps to finance vacations

Many Singaporeans would love to go on vacation at least once a year. However, this is normally not possible because of the lack of funds. Having accumulated savings can make the dream of going on vacation a reality. Family and friends can enjoy a time of rest, relaxation and bonding together. Using savings to go on vacation is a much better option than getting into debt.

4. Limits debt

Having some amount in savings can help one to limit the amount of debt burden that they have. Savings can be used to finance certain expenses instead of using a credit card. This will definitely limit the amount of debt liability and will also save the amount that could have been spent on interest. Savings also help one to avoid taking emergency loans when urgent situations occur, further limiting existing debt.

5. Gives financial freedom

Accumulated savings gives one peace of mind and helps him or her to enjoy financial freedom. There is a comfort in one knowing that there is a buffer than can be used if funds are needed urgently. This is in contrast to those who live from one salary to the next. They immediately become stuck financially if any unexpected expense arises.

6. Helps prepare for retirement

There are long-term benefits of saving. One of them is having funds available for retirement. Many retirees who rely on a pension usually do not have enough to cater to all their needs. Making a habit of saving a small portion of one’s income over several years can accumulate into a substantial amount of retirement funds. This will make retirement much more comfortable.

7. Helps finance further education

Fees for further education is a major expense in Singapore. Accumulated savings will enable one to further his or her education without having to source funds elsewhere. This will help one to progress quickly in his or her career. This is especially beneficial for those who may not be eligible to apply for a personal loan or education loan.

8. Helps to finance the down payment for a mortgage

Having savings can be the first step towards one becoming a proud homeowner. All banks require that a mortgage applicant places a down payment of a certain percentage before the loan is approved.

The amount to be given as a deposit cannot be borrowed. Therefore, the applicant will need to obtain it from savings or from family and friends. Savings will be a better option because family and friends may not have the funds required.

9. Helps to finance a wedding

Weddings are a major expense in Singapore. Many couples end up postponing their ceremony because of financial constraints. Having accumulated savings enables the couple to plan their day confidently. Using savings to finance a wedding is a much better option than taking a wedding loan, because the couple will start their married life together free from debt.

10. Helps to finance the down payment for a car

Depending on the amount required for the car, one can use savings either to purchase the car in full or pay the initial deposit for a car loan. It is more ideal for one to budget for a cheaper car which can be fully financed by the savings, and avoid taking the car loan. This will enable the buyer to save the money that would have been spent on interest.

From the above points, it is obvious that those who exercise the discipline of saving have a much lower probability of entering into a financial crisis. It is a worthwhile habit to adopt.

How much Money Should you Save each Month?

The savings you create today build some flexibility into your life. Plus, provide peace of mind as you journey through life. With savings, you have more freedom in your decisions because you are not strictly tied to a source of income. You’ll have the option to build your savings for the things that matter to you most.

How much money should I save?

The amount of money you should save each month will vary widely based on your goals. Before you choose your savings goals, take a look at your life goals. Consider the logistics around large purchases such as a luxury vacation or car. Plus, think about long-term timelines for your big savings goals such as buying your first home or retirement.

Thinking about savings goals such as a luxury vacation or worry-free retirement can be exciting. But it can be difficult to break these long-term goals down to monthly saving.

For example, if you plan to retire early then you may need to save 50% of your income each month. However, if you want to retire in your 70s, then you will likely not need to have such an aggressive savings goal. The savings goal you set for each month is truly a personal decision. Make sure to factor in your own life plans when you set up your savings plan.

With that, a good place to start your savings goal is 20% of your income each month. Most experts recommend saving at least 20% of your income each month. That is based on the 50-30-20 budgeting method which suggests that you spend 50% of your income on essentials, save 20%, and leave 30% of your income for discretionary purchases.

So if you bring home $1,000 after taxes each month, then you would try to set aside $200 each month. You might divide that $200 into several different savings vehicles. For example, you might direct the savings you’ve earmarked for retirement into a 401(k) or Roth IRA. Or place some of the money into a high yield savings account until you are ready to spend it on your upcoming vacation.

Consider an emergency fund

In addition to your other savings goals, it is important to build an emergency fund. In fact, an emergency fund could be the best place to start your savings.

With an emergency fund, you prepare for the inevitable surprises that life throws your way. When you are faced with a medical emergency or unexpected car repair, you’ll be able to fund those costs without sinking into debt. You’ll have the peace of mind and be more able to focus on the actual emergency at hand instead of the finances.

Consider your unique situation

Of course, it might not be possible to hit a 20% savings rate in your current situation. And that is completely okay! You should take a closer look at your finances and determine how much you can manage to save each month. The goal of saving some money is much better than saving no money at all. Plus, every little bit adds up. Even if you were only able to save $20 each week, that still leads to $1,040 in savings at the end of the year.

As you move through life, reassess your savings plans along the way. For example, if you are able to negotiate for a raise, then you might be able to increase your savings rate. Or if you have a month with many unexpected expenses, don’t be discouraged if you don’t hit your savings goals. Life can get messy, you should expect to adjust your savings goals to adapt to the situations that life throws your way.

How to save more money

Once you set your savings goals, you might need to make some changes to your habits to meet those goals. Let’s take a closer look at some of the ways that you can save more money!

1. Evaluate your priorities

As you start to save more, evaluate your priorities. You should not slash things out of your budget that make your life enjoyable just to meet your savings goals. Instead, get creative with the spending that doesn’t make you happy.

Read Also: The Best Apps you can use for Budgeting

For example, you might not be willing to eliminate weekly dinners out with friends. However, you might be able to cancel some subscriptions that you rarely use anyway.

2. Try to be frugal

Frugality can sometimes get a bad rap because people confuse being frugal with being cheap. Cheap means getting the lowest price possible, but frugal means aligning your spending with your values. Learning to be frugal can help you increase your savings without sacrificing the quality of your life.

Here are a few ways to build frugality into your spending habits:

• Seek out discounts. You can find a discount for almost anything. Whether you seek out a better rate on your car insurance or compare prices on everyday purchases, you can build more savings into your budget without too much effort.
• Find coupons. Coupons can allow you to save money on items without sacrificing on quality.
• Try the 24 hour rule. If you find an item you like, then consider waiting 24 hours before making the purchase. You might find that you don’t really want the item after 24 hours. This practice can help you to become more intentional about your spending.
• Meal plan. Meal planning can cut out last-minute fast food.

These are just a few ways to be more frugal. Make sure to get creative in your own life!

3. Earn more

If you are unable to cut any spending out of your budget, then the best option is to earn more. Luckily, your income potential is not something with a cap.

The first place to start is by asking for a raise at your current job. You might be able to negotiate a higher pay rate for the same amount of effort.

If a raise is not in the cards, then consider a side hustle. With some creativity and hard work, you can build a side hustle to increase your income and supercharge your savings.

4. Try a savings challenge

A savings challenge is a great way to motivate yourself to save more. As you go through the challenge, you might find that you are able to save more than you realized.

You might want to start small with our 90-day savings challenge. The goal is to save every $5 bill that you receive over for 90 days. With our challenge, you’ll have an accountability buddy that can help motivate you to stay on track. It can be surprising to realize how much you are able to save through this simple tactic.

Finally

Saving for your future is an important step to building a healthy financial picture. Although it can be a challenge to start saving at first, it will get easier with practice. Take a look at your financial picture and decide how much you want to save.

Consider how much you are able to save based on your current income and spending. Then find a balance that works for your situation. It is possible to make saving each month a reality. Although it might not always be easy, your future self will thank you!